Pound (GBP) Strengthens as Markets Price In 50bps Hike
The Pound (GBP) leapt higher yesterday after record-high wage growth boosted expectations of another 50bps rate hike from the Bank of England (BoE).
Average earnings in the UK rose 7.3% in the three months to May, unexpectedly matching the previous all-time high. With BoE policymakers fearing a wage-price spiral, this data increased the likelihood of more aggressive action from the British central bank.
The publication of the BoE’s financial stability report leaves Sterling to trade sideways this morning as the bank warns rising interest rates are likely to place more pressure on businesses and consumers.
Euro (EUR) Falls as German Morale Weakens
A worse-than-forecast deterioration in German investor morale weighed heavily on the Euro (EUR) yesterday.
The latest ZEW economic sentiment index dropped to its lowest level since December, stoking fears around the health of the Eurozone’s largest economy.
Looking ahead, a speech from European Central Bank (ECB) Chief Economist Philip Lane could impact EUR this afternoon. If Lane sounds coy about further tightening beyond July, the Euro could stumble.
US Dollar (USD) Wobbles Ahead of US Inflation Data
The US Dollar (USD) struggled to find a clear direction yesterday as a mixed market mood and wavering US Treasury bond yields impacted the American currency.
USD investors also seemed hesitant to place any aggressive bets ahead of today’s consumer price index, which could cause significant volatility in the US Dollar.
Due out this afternoon, the CPI is expected to show that US inflation cooled again last month, which could sap Federal Reserve rate hike bets and therefore dent the US Dollar.
Canadian Dollar (CAD) Limited as Investors Brace for BoC
The Canadian Dollar (CAD) was also mixed yesterday, amid cautiousness ahead of today’s Bank of Canada (BoC) decision. An uptick in oil saw the crude-linked ‘Loonie’ rise against its weaker peers.
The BoC will convene this afternoon to set interest rates. While an expected rise could boost CAD, any hints that this month’s hike is the bank’s last would likely weigh on the ‘Loonie’.
Australian Dollar (AUD) Fluctuates amid Mixed Mood
The Australian Dollar (AUD) initially rallied overnight on Tuesday, with the risk-sensitive ‘Aussie’ being buoyed by an upbeat market mood. However, AUD exchange rates quickly fell back as the mood soured toward the end of the Asian session.
New Zealand Dollar (NZD) Muted after RBNZ Leaves Rates on Hold
The New Zealand Dollar (NZD) was subdued in overnight trade as the Reserve Bank of New Zealand (RBNZ) left interest rates on hold, but announced its restrictive monetary policy will need to remain in place for some time.